Morgan Grenfell Private Equity (MGPE) got the inside track on at least five rival private equity houses just before Christmas when the firm bought betting shop operator Coral from Ladbroke Group for GBP390 million ($648 million).
Unsuccessful participants included Cinven, which reportedly bid $625 million; a rival buy-in consortium headed by former Coral Managing Director Michael Snapes and supported by HSBC Private Equity and PPM Ventures; and Tote, the state-owned bookmaking business that was the initial favorite in the Coral auction, whose $625 million offer was backed by Electra Fleming and Candover.
Ranking as Britain’s third largest bookmaker, Coral operates 827 licensed betting offices, a number of on-course betting facilities, a telephone betting business and two greyhound tracks. The company had $1.46 billion in revenue for the year ended Sept. 30, 1998, and made operating profits of $28 million in the six months prior to June.
Ladbroke, the U.K.’s largest bookmaker, paid $603 million to acquire Coral from Bass in 1997 but was forced to sell the business when British anti-trust regulations were applied to the transaction.
MGPE put together a funding package totaling $714 million, including working capital and fees, for the buy-in.
Deutsche Bank, MGPE’s parent, underwrote some two-thirds of the equity component of the structure alongside the Morgan Grenfell Equity Partners fund. As in the case of last fall’s Vianova Resins buyout, Deutsche Bank intends to transfer a substantial portion of its equity exposure to MGPE’s next fund, which is scheduled to launch early this year.
Lehman Brothers, which advised MGPE on the acquisition, underwrote the debt element of the financing, which included a $133 million mezzanine bridge.
Exact details of the buy-in financing structure were unavailable, but an MGPE spokesperson confirmed that it likely will refinance part of the consideration with a high-yield bond offering, depending on market conditions.
MGPE has added a new chief executive, Bob Scott, to augment Coral’s existing management. Mr. Scott began his career with William Hill, Britain’s second largest bookmaker, before joining the Debenhams department store chain. From Debenhams, Scott moved to Mecca Bingo, where he introduced innovations to the layout and facilities offered by the group’s bingo clubs that boosted performance.
Graham Hutton, MGPE’s CEO, said “Coral is a high-quality asset with a strong position in the U.K., operating in a progressive and innovative way, bringing a more consumer-friendly approach to this industry. We intend to continue to invest in the business and develop the franchise.”
Buyout Brings Expansion Plans
Coral currently is less well represented in the Northwest of the U.K. than in the South and East. MGPE plans to exploit this potential for growth either by opening additional outlets or through add-on acquisitions of regional betting shop chains.
A public offering appears to be MGPE’s most likely eventual exit route because, as Ladbroke’s experience shows, the most obvious potential strategic buyers are ruled out by the current regulatory environment.